Fintech M&A: How the Misys and D+H merger reshapes the market

Nadeem Syed, CEO at Finastra spoke exclusively to bobsguide about the Misys merger with D+H, to form one of the globe’s largest fintech companies by revenue size.

How long ago did the idea start to formulate to merge D+H and Misys?

The germination of the idea began from the realisation that Misys and D+H were two businesses that were incredibly complementary to each other.

Misys always had a global footprint from a customer perspective, but this was particularly focused outside of North America. If you look at revenue, 83% of Misys revenue was generated outside of the US. On the other hand, D+H is a global business but the vast majority of its revenue (88%) is generated in the North American market. When you combine those revenue streams together, you create a good mix of revenues, including markets in Africa, Asia and Europe.

The ex-CEO of D+H and I had conversations in past years about the industrial logic of combining the businesses. I have been in the software industry for 30 years but have very infrequently seen two businesses that are so complementary to each other. There is virtually no overlap in the customer base or in products, but there is an incredibly harmonised set of technology offerings.

Then last summer it became clear that D+H would be open to acquisition conversations, and we saw a great opportunity to merge the company with Misys to create a much more comprehensive offering, with a robust revenue footprint of $2.1bn and 9,000 customers.

When we did our investigations we found the company was in exactly the shape we expected to find from our observations from the outside. Our owners, Vista Equity Partners, participated in the competitive bidding process to acquire the company and were able to secure the bid. We announced that back in March, and now we are in the process of bringing the companies together, having launched the combined company – Finastra – on 14 June. As we go through the integration we are seeing incredible dovetailing of our products.

So much of the thought process of how the companies would fit together had been done theoretically in the past?

As we brought the companies closer together, we better understood the depth of the capabilities a combined group would have.

For example, Misys provided incredibly strong corporate banking capabilities and some of the best finance and lending capabilities in the market, but cash management and payments were not a significant part of its product footprint. We knew those were areas we had to improve. D+H had one of the best payments and cash systems in the market that completely complements our solutions from a corporate banking perspective.

In retail banking we were missing the North American market and D+H exclusively serves this market. Now we have access to both sides of the Atlantic from a market coverage perspective.

Also, even though Misys already had a very robust lending offering, this focused on the more complex side of lending. D+H focuses on the simpler side and the new alignment will allow us to offer the best end-to-end lending suite.

Does the strength of the deal emanate from the fact that the two businesses complement each other because they don’t compete? For example, are there are cross-sell opportunities?

There are, and we’re seeing that already. After we combined we spoke with many of our largest customers and the move has been universally welcomed by them. There haven’t been any conversations where our commercial partners don’t see the logic behind the move.

In fact, Misys had potential clients in the pipeline that we were trying to sell a lending solution or retail finance solution to, and D+H were concurrently trying to sell the same client a payments solution. The fact that we are now one company means that we are able to provide one solution to the customers that is much more robust.

How have your competitors reacted to the move?

Whenever you make as significant an announcement as the combination of Misys and D+H then there will be a degree of reaction from the market.

We are becoming more competitive, especially in opportunities where customers are looking for greater end-to-end capability. For example, customers that are looking at payments and cash and concurrently looking at finance and lending benefit from the fact that we are the only supplier that can provide an end-to-end best-of-breed solution. Competitors can provide a fraction of the capabilities in some cases, but not the broad suite we offer. We can go wide and deep in terms of the range and speciality of capabilities, our competitors cannot do both.

Do you think that there will be more consolidation in the market as a response to the Misys and D+H merger?

Financial services is an industry that is unique, it is one of the largest IT markets in the world. Depending on who you believe, the software market is valued in the range of $160bn. Of that value, the vast majority of the spend is on home-grown systems, the penetration of packaged software in that market is not incredibly deep.

So our focus is less about us winning business against competitor A or competitor B, the opportunity is in demonstrating the benefit of replacing the dated legacy systems the banks have built. The global banking environments have become more complicated and regulation orientated, customer expectations continue to rise, there is more digitisation though new technology such as machine learning and banks are recognising that the current systems they have implemented are not fit for purpose. That’s creating a tremendous shift towards packaged solutions.

We are seeing that opportunity and so are our competitors. In my view this market is an ocean of opportunity, which is why it is less about looking at our competitors It’s about going into the market and taking advantage of the end-to-end solution that we have, helping customers solve existing problems.

In any industry, as it matures there is going to be consolidation. If you look at any other market that’s gone through a similar journey, it is an inevitability. We are one of the largest fintech players in the world and what we provide is unparalleled, so we are uniquely placed to take advantage of that leadership position.

What are the biggest issues with merging the two businesses together?

It is always complicated when you bring two organisations together. But there are several things that make it easier for us.

When you have overlapping products and overlapping market strategies, that’s when you have to decide how you are going to align your conflicting product portfolios. We have very little of that to worry about.

We have to ensure we are operating as one company. How do we maximise our synergies? How do we create one company culture for employees across the business? How do we create opportunities for employees to learn and grow? Again, there are many parallels between the two companies here.

Mergers do take time, but what gives me tremendous confidence is that the cultures are already very much aligned. There is a thirst across the companies for innovation, for providing the customer with value – there is open culture on both sides. The two organisations have similar DNA, which helps the process.

Are you excited about the future of the fintech industry?

I am very excited about where the industry is heading. If you look back 10 or so years ago, banks were making so much money that they could buy their way out of any problem. The new regulatory environment and competitors the banks are facing is now forcing the industry to react, which is creating opportunities for all of us to do things differently. Look at cloud, 10 years ago the industry wouldn’t have even considered cloud, now it is becoming mainstream.

Alex Hammond

Managing Editor, bobsguide

Alex Hammond is the managing editor of the digital finance portfolio of Contentive, which includes bobsguide, GTNews and PaymentEye. An avid journalist and editor, he writes industry analysis articles and conducts exclusive interviews with senior industry figures across all titles, in addition to commissioning all thought leadership content and representing the media brands at industry events.

Alex Hammond

Managing Editor, bobsguide

Alex Hammond is the managing editor of the digital finance portfolio of Contentive, which includes bobsguide, GTNews and PaymentEye. An avid journalist and editor, he writes industry analysis articles and conducts exclusive interviews with senior industry figures across all titles, in addition to commissioning all thought leadership content and representing the media brands at industry events.

Alex Hammond

Managing Editor, bobsguide

Alex Hammond is the managing editor of the digital finance portfolio of Contentive, which includes bobsguide, GTNews and PaymentEye. An avid journalist and editor, he writes industry analysis articles and conducts exclusive interviews with senior industry figures across all titles, in addition to commissioning all thought leadership content and representing the media brands at industry events.

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